Technology transfer agreements: where intellectual property and competition law meet

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Decision makers are advised to consult a professional to ensure that restrictive clauses in technology transfer agreements are exempted under the regulation, or permissible on another basis, as the regulation and competition law in general feature several peculiarities.

Introduction

Technology transfer agreements enable a more effective environment to undertake research and development (R&D) and foster innovation. Under the technology transfer agreement framework, an undertaking can license technology rights for the production of products. On this basis, the licensor can focus its financial and other resources on the development of certain technology, while the licensee acquires the right to exploit the technology.

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Such agreements have a largely IP focus and generally include:

•non-compete provisions;

•territorial restrictions; or

•similar obligations which are restrictive with regard to competition.

EU law prohibits agreements and practices which prevent, restrict or distort competition. Thus, the above provisions may be unlawful and unenforceable. However, EU law recognizes that, if certain conditions are met, such provisions may be pro-competitive and therefore exempts them from the ban.

A standard non-compete clause in a technology transfer agreement may be exempted on the basis of the benefits and efficiency gains relating to technology transfer. The framework of such an exemption is established in the EU Technology Transfer Block Exemption Regulation (316/2014) on the application of Article 101(3) of the Treaty on the Functioning of the European Union to technology transfer agreements.

Basis of exemption

Article 101 of the Treaty on the Functioning of the European Union prohibits anti-competitive agreements. However, it provides an exemption if:

•an agreement produces economic efficiencies;

•the agreement’s restrictions are indispensable to the attainment of these efficiencies;

•consumers will receive a fair share of the efficiency gains; and

•the agreement will not eliminate healthy competition regarding a substantial part of the products.

The regulation provides an exemption by way of presumption. A technology transfer agreement which falls within the scope of the regulation will be presumed to meet the above exemption conditions and, on this basis, will be permissible and enforceable. Notably, if the conditions are not met, the agreement may still be permissible. However, an individual assessment will be necessary to determine whether Article 101(3) can be invoked.

Market share thresholds

The presumption provided by the regulation does not apply if the parties’ product or technology market shares exceed a certain percentage. The relevant market share threshold differs depending on whether the parties to the agreement are potential competitors as follows:

•competitors’ joint market share must be below 20 % for it to benefit from the exemption; and

•a non-competing undertaking’s market share must be below 30 %.

Where an agreement concerns two or more relevant markets, the exemption may apply only to certain markets. With regard to other markets, an individual assessment will be necessary.

Hard-core restrictions

Agreements that include hard-core competition restrictions fall outside the scope of the regulation.

Agreements between competitors fall outside the scope of the regulation if they include:

•price fixing or a restriction of the licensee’s ability to determine the prices to be paid by third parties;

•an output limitation;

•a market or customer allocation; or

•a restriction of the licensee’s ability to exploit its own technology rights or an R&D restriction.

Agreements between non-competing undertakings fall outside the scope of the regulation if they include:

•price fixing or a restriction of the licensee’s ability to determine the prices to be paid by third parties (except maximum or recommended prices);

•a restriction of the territory in which the licensee can passively sell products; or

•a restriction of active or passive sales to end users by a licensee that is a member of a selective distribution system and operates at the retail level.

It is sufficient if the effect of the agreement’s provisions amount to one of the above restrictions – for example, a clause which requires the licensee to include a charge in the price of each product will amount to a fixed minimum price.

Where an agreement includes a hard-core restriction, the entire agreement will fall outside the scope of the regulation. In such cases, Article 101(3) of the Treaty on the Functioning of the European Union may still be invoked if the parties can prove that the agreement fulfils all of the necessary conditions outlined in the article. However, it is uncommon for parties to invoke Article 101(3) successfully in such cases.

Excluded restrictions

One of the main goals of the regulation is to foster innovation. In light of this, it excludes:

•the inclusion of provisions on exclusive grant-backs (ie, an exclusive license-back to the licensor of the licensee’s innovation); and

•the imposition of obligations on a party not to challenge the validity of the other party’s IP rights in the European Union.

Further, with regard to non-competing undertakings, the regulation excludes the imposition of obligations which limit:

•the licensee’s ability to exploit its own technology rights; or

•the ability of any of the parties to the agreement to carry out R&D.​

 

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